Tax expenditures are getting increased scrutiny from budget hawks and tax reformers. New Treasury estimates, released as part of President Obama's recent budget, indicate that these tax preferences will reduce individual and corporate income tax revenues by almost $1.1 trillion in 2011. Those provisions will also increase spending on refundable tax credits by $108 billion and will reduce payroll and excise tax receipts by $111 billion. Together, the tax expenditures identified by Treasury will total almost $1.3 trillion this year

The federal income tax code is riddled with complex provisions concerning children. Families with children qualify for and receive substantial assistance, but the provisions are difficult for parents to understand and for the IRS to administer. This article proposes making uniform the definition of child — under age 19, regardless of student status — for the key child benefits: the earned income tax credit, the dependent exemption, head of household filing status, and the child tax credit. Savings from the proposal could be used to subsidize higher education, particularly for low-income families that would lose assistance from the EITC. The proposal would simplify the tax system, clarify incentives, and set the stage for broader reform.

Senator Barbara Boxer (D-CA) today released this letter requesting the ABA to increase its oversight of law school reporting of admissions and post-graduation employment information:

As you know, recent news articles have raised concerns about the reporting of admissions and post-graduation information by the American Bar Association and law schools across the country. It is essential that students deciding if and where to attend law school have access to information that is accurate and transparent. The ABA, as the accrediting body charged with oversight of the nation’s law schools, must ensure standards and accountability.

As the economy continues to recover from the recession, many new law school graduates are struggling to find jobs as attorneys. According to Northwestern University, at least 15,000 legal jobs with large firms have disappeared since 2008. The Bureau of Labor Statistics indicates that the number of people employed in legal services has decreased from a high of 1.2 million in 2007, to less than 1 million in 2009. Experts predict that fewer than 30,000 new attorney positions per year will be available to the more than 44,000 law school graduates entering the marketplace each year.

This very serious problem takes on greater significance when viewed in the context of news articles highlighting law schools that allegedly falsify post-graduation and salary information in attempts to increase their position in the annual U.S. News and World Report rankings.

Most students reasonably expect to obtain post-graduation employment that will allow them to pay off their student loan debts, and rely on this information - which may be false at worst and misleading at best - to inform their decision.

As reported in the New York Times and other publications, the ABA allows law schools to report salary information of the highest earning graduates as if it were representative of the entire class. Also, when reporting critical post-graduation employment information, law schools are not distinguishing between graduates practicing law full-time from those working part-time or in non-legal fields.

I understand that some ABA members have been pressing for reform, that the ABA has appointed committees to review ways to increase oversight and transparency, and that U.S. News and World Report has requested greater transparency from law school deans. These are good first steps, but more must be done to ensure potential students have a full understanding of the costs and benefits of a legal education.

I am requesting that you provide me with a detailed summary of the ABA’s plans to implement reforms to its current procedures to ensure access to accurate and transparent information for prospective law school students.

In the years since a 1993 article by McDaniel and Repetti (“M-R”) evaluating the intellectual landscape of Horizontal Equity (“HE”), the appropriate role for HE in formulating tax policy has continued to generate controversy and debate. Perhaps one way to encapsulate the question after all this time is to ask – if we started with HE as our motivating concept in designing a tax system where would we be? If HE says treat equals the same, what does our tax system look like? The answer is – we don’t know because the term provides no guidance for selecting the criteria to measure equality or for defining fairness. We must turn to some theory of distributive justice to determine equality and to determine an appropriate tax burden. At this point, some argue that HE collapses into Vertical Equity (“VE”), the doctrine that an appropriate difference should be made among taxpayers who are different. As Musgrave and M-R point out, however, VE, itself, lacks normative content and is only a proxy for theories of distributive justice that determine the appropriate difference to be made among taxpayers. Framing the issues of equality and fairness in the tax system in the language of VE and HE has masked the emptiness of the concepts and overemphasized the possibility of two, distinct fairness inquires. We have been side-tracked from our larger task of tackling our disagreements about the underlying questions of distributive justice.

For those who remain committed to a gut sense that HE means something, we would say, “yes, but a different something.” Several of the post-1993 authors discussed in this article have constructed a role for HE that is not a role in determining tax burdens and tax equity. Although HE is not a useful tool for tax policy design, it is a useful tool for assessing governmental administration of tax laws. HE safeguards against arbitrary enforcement of tax laws and, therefore, stays at the forefront of tax consciousness because arbitrary enforcement would be particularly pernicious in a system that does not usually make public disclosures regarding each taxpayer’s liability for taxes. Perhaps because of the close link to tax policy and practice, the administrative role of HE (transmitting the norm of uniform enforcement of tax law to government actors) explains the unstated but visceral commitment to HE that has continued to spark debate over the past 20 years.

This paper takes tax expenditure analysis one step forward by showing how the mischaracterization of tax expenditures systematically leads to more overall spending (bigger government), higher taxes, larger deficits, and a misallocation of resources away from cash spending programs in favor of tax expenditures. For those who favor smaller government, and lower taxes, this should be a source of concern. Moreover, since tax expenditures tend to benefit families with higher incomes, the misallocation of scarce resources away from traditional spending programs raises equity concerns as well.

Integrating tax expenditures into the budget process and subjecting them (and all other spending) to effective controls could improve the efficiency of government and soften the blow from the belt tightening that is necessary if we are to avoid a debt crisis. An added benefit is that reduction in tax expenditures could simplify the income tax and make it less prone to abuse, especially if part of the revenues from the trimmed tax expenditures were used to cut marginal income tax rates. That is, controlling tax expenditures might increase the chance of executing badly needed tax reform.

Policy makers should not expect this important change to be the last budget reform they will be called upon to make, however. Good budgeting requires limits, a comprehensive scope, and real time scoring of decisions against limits. Adding tax expenditures to the budget process is a logical and necessary step toward that goal but the path is likely a long one.

The debate over whether tax privacy—a set of statutory rules that prohibits the federal government from publicly releasing any taxpayer’s tax return—promotes individual tax compliance is as old as the income tax itself. It dates back to the Civil War and resurfaces often, especially when the government seeks innovative ways to collect tax revenue more effectively. For over 150 years, the tax privacy debate has followed predictable patterns. Throughout the long history of this debate, both sides have fixated on the question of how a taxpayer would comply with the tax system if he knew other taxpayers could see his personal tax return. Neither side, however, has addressed the converse question: how would seeing other taxpayers’ returns affect whether a taxpayer complies? This Article probes that unexplored question and, in doing so, offers a new defense of tax privacy: that tax privacy enables the government to manipulate taxpayers’ perceptions of its tax enforcement capabilities by publicizing specific examples of its tax enforcement strengths without exposing specific examples of its tax enforcement weaknesses. Because salient examples may implicate well-known cognitive biases, this “manipulation function” of tax privacy can cause taxpayers to develop an inflated perception of the government’s ability to detect tax offenses, punish their perpetrators and compel all but a few outliers to comply. Without the curtain of tax privacy, by contrast, taxpayers could see specific examples of the government’s tax enforcement weaknesses that would contradict this perception. After considering this new defense of tax privacy in the context of deterrence and reciprocity models of taxpayer behavior, I argue that the manipulation function of tax privacy likely encourages individuals to report their taxes properly and that it should be exploited to enhance voluntary compliance.

President Obama signed into law an historic overhaul of the United States health care system. One of the most discussed provisions of the health care reform was the “individual mandate,” a provision that requires individuals to have health care insurance that provides “minimal essential coverage.” Unless exempted, any individual that does not have such health insurance is subject to a tax “penalty” which is payable on the individual’s income tax return.

This article examines the individual mandate in detail. It explains how the provision operates, the purposes that the mandate is designed to serve, and discusses whether the Act is the first of its kind to impose a tax on individuals for failing to acquirea product. The article also addresses the question of whether it is appropriate to use a tax penalty to induce the public to make a purchase that Congress deems desirable. While the benefits derived from utilizing a penalty, rather than adopting a credit or deduction system, are obvious, the costs are more subtle and require some inquiry and thought to bring them into view. Finally, the paper explores the costs and benefits of utilizing the Internal Revenue Service to administer the program. Again, while the benefits are obvious, the costs should not be overlooked.

This article does not pass upon the question of whether the costs of this program are sufficient to make its adoption unattractive. The more modest objective of this work is to identify those costs and leave to the reader the task of weighing them against the benefits and deciding which should prevail.

Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country. -- IRS Website

This is the essence of a LoB - Limitation on Benefit clause in the U.S. experience. A device used to limit the application of a Treaty, and the benefits it generally provides to taxpayers only to the individuals and companies actually entitled to them. If we assume a Treaty to be as a sort of contract entered into by Sovereign states, the LoB clause is aimed to safeguard the consideration for it, and for the prevention of free raiders to exploit it beyond the ratio and the aim pursued.

It's not a brand new topic to be addressed in an Academic seminar, neither under a purely International Tax Law perspective, nor following a mixed approach (U.S. - E.U. interaction). Academics have already pinpointed the most debated points in this respect, in particular for what concerns the interaction between LoB clauses and the EU Law.

The perspective chosen in this seminar is however different. The aim is of course to check the state of the art in this respect, recording the most recent changes in the LoB practice beyond the Ocean, but also to see how and if these changes are impacting on the practice of DTCs in Europe, see whether they are originated by a new trend in the interpretation of Taxation law or if the try to address new problem that arose in the International business in the most recent year.

General Electric Co. (GE)’s tax rate will rise this year and beyond after $32 billion of losses absorbed by the company’s financial-services business pushed down rates in 2008 and 2009, Chief Executive Officer Jeffrey Immelt said. “We got socked with losses during that time,” Immelt said yesterday in a speech at Rice University in Houston. “Our tax rate is going to be much higher in 2011 and the future.”

The New York Times reported March 24 that GE had a tax bill of zero in 2010, an assertion that the Fairfield, Connecticut- based company said on its website is misleading, in part because of its characterization of tax rebates, benefits and so-called tax loss-carryforwards. The complexity of the U.S. tax system needs to change, Immelt said.

“Rarely does business speak with one voice, but they do on taxes,” Immelt said. “Our system is old, it’s outdated, it’s complicated -- and all of us are for closing the loopholes. Absolutely, a lower corporate tax rate, and a territorial system, just like our global competitors have.”

U.S. News & World Report has released a list of the ten law schools with the best financial value (first year salary to student loan debt ratio):

With tuition increasing at nearly every law school for the 2011-12 school year, incoming students may want to consider the initial value a law degree will render. A legal education can cost upwards of $150,000, and students, on average, graduate from law school with $93,359 in debt, according to an analysis of school-reported data to U.S. News. ...

Of 190 law schools surveyed each year by U.S. News, 188 schools reported both the average indebtedness of their 2010 graduates and the median starting salary of graduates who accepted jobs in the private sector. The salary-to-debt ratio, used in the table below, is a calculation of how many times a student's reported starting salary covers their debt load. For this list, only private sector starting salary data was considered, and schools that were designated by U.S. News as Unranked are not included. ...

Based on an analysis of school-reported data, this list comprises 11 law schools whose students leave with the least amount of debt relative to their first year salaries in the private sector.

The Tax Court yesterday held that a women could deduct funds withdrawn from her businesses by her abusive boyfriend as theft losses. Herrington v. Commissioner, T.C. Memo. 2011-73 (Mar. 30, 2011);

In 1991 petitioner was working two jobs to support herself and her two young children. One job was as the owner of an H&R Block franchise; the other was in a prison detention center. She had recently divorced, her father had recently died, and her mother had moved into her house to help take care of the children. About this time petitioner became involved with a man working at her H&R Block office, and he moved in with her. She later learned that he had an extensive criminal record and a violent temper.

Petitioner's relationship with the boyfriend was marked by intimidation and physical abuse. When she failed to do his bidding or attempted to leave him, he reacted violently. He once threw her from a moving car. Another time when she threatened to leave him, he placed a gun against her forehead and cocked the hammer. On another occasion, in midwinter, he hit her in the head with a beer bottle and threw her from a boat into a lake. On another occasion, she testified credibly, he "gave me a picture of my daughter with her face shot out, and told me that's what would happen to her if I tried to leave."

At some point after becoming involved with petitioner, the boyfriend obtained a video poker license and opened an establishment in Monroe, Louisiana. After only a few months, he lost his license for misdeeds that included selling liquor to a minor. The boyfriend convinced petitioner to open her own video poker business.

In 1996 petitioner acquired two video poker licenses in her own name. Because, according to petitioner's testimony, the licenses were required "to be run separately", she opened two sandwich shops next door to each other in Farmerville, Louisiana, each with a video poker machine. Petitioner worked in the shops making sandwiches and dealing with the public. The boyfriend took charge of the finances and the books and had check-signing authority on the business bank accounts. Virtually all the shops' income resulted from video poker revenue.

Petitioner and the boyfriend had no agreement regarding his compensation. Rather, as petitioner testified, he "set his own compensation". He did this by writing checks to himself or to cash, signing either his name or petitioner's name. In this manner he withdrew from petitioner's business accounts $114,000 during 1997 and $96,000 during 1998. He used these funds to pay his personal expenses, including his child support obligations.

Petitioner knew that the boyfriend was writing checks and taking money out of her business accounts. But she did not know beforehand when he might write checks or for how much. Consequently, she was left in constant uncertainty about the balances in her business checking accounts. To avoid overdraft fees, she worked out an arrangement with a friend who worked at her local bank and who knew of petitioner's troubles with the boyfriend. Each morning petitioner would call her friend at the bank to determine how many of her checks were set to clear the accounts that day. As long as petitioner made a cash deposit to cover the checks by noon of any given business day, the bank would honor the checks and not charge overdraft fees. ...

There is no dispute about any item of petitioner's income or deductions other than the deductions that petitioner claims with respect to the amounts the boyfriend received, stipulated to have been $114,000 for 1997 and $96,000 for 1998. ... [W]e conclude that ... all these amounts are deductible as theft losses under § 165. ...

A preponderance of the evidence convinces us that the boyfriend's taking of funds from petitioner's business accounts for his personal purposes constituted theft within the meaning of Louisiana law. The evidence does not suggest, and respondent does not contend, that petitioner consented before the fact to the boyfriend's writing checks from petitioner's business accounts to pay his personal expenses. To the contrary, as previously discussed, the evidence shows that petitioner would often find out about these checks only after the fact by making inquiries at the bank. We infer that petitioner proceeded in this manner to avoid physical confrontation with the boyfriend.

On brief, respondent contends that the boyfriend's takings should not be viewed as thefts or conversions because petitioner "never objected to the transfers and there is no evidence that she reported any theft to the appropriate authorities". Under Louisiana law, however: "In order to consent to the theft of his property, an owner must do more than passively assent to the taking." State v. Johnson, 408 So. 2d 1280, 1283 (La. 1982). We do not believe that petitioner ever gave more than passive assent to the boyfriend's taking her business funds. But even if petitioner might be thought in some general way to have consented to the boyfriend's compensating himself with her business funds, we do not believe that it was effective consent, but rather that it was induced by force and threats by the boyfriend, who had on more than one occasion threatened to kill petitioner and her children. For similar reasons, we assign little significance to the fact that she did not report the thefts to the authorities.

Respondent contends that because petitioner and the boyfriend lived together at times, she personally benefited from the withdrawals, such that they should be considered her nondeductible living expenses pursuant to § 262. We are not convinced by respondent's argument, which is inconsistent with our finding, based upon petitioner's unopposed proposed finding of fact, that the boyfriend used the funds taken from petitioner's business to pay his personal expenses.

Water is essential for life. Inadequate potable water supplies lead to poverty, disease, starvation, and civil strife. Climate change is likely to put more pressure on the world’s supply of fresh water. Rising sea levels will introduce salt into some fresh water systems. As high mountain snow cover and glaciers decline, they will store less fresh water. As regions heat up, droughts will become more persistent. Producing energy uses water. How much water is used depends on the source of the energy. Yet in the rush to transition to a renewable energy economy, policy makers have paid little heed to the potential water consequences. Reducing CO2 emissions will not help society if the alternative energy sources use more water than the traditional energy sources they replace. This article examines the links between renewable energy tax incentives and water consumption. Tax incentives for renewable energy sources should account for water consumption as well as potential for reduced CO2 emissions. This article first reviews water usage statistics for traditional energy sources and compares water usage statistics from various renewable energy sources. Next, the article analyzes the U.S. federal tax incentives for energy sources, with particular attention to newer incentives for renewable sources and examining those incentives for water impact. Finally, the article provides some recommendations for legislative action.

To fill budget gaps, several state legislatures have proposed increasing existing taxes on tobacco and alcohol products. In addition, some states (as well as the federal government) are considering the enactment of new 'sin taxes,' for example on high sugar drinks and internet pornography. This working paper examines the arguments for and against imposing sin taxes. It argues that the use of sin tax revenues should be limited to ameliorating the problems caused by the 'sinful' product rather than for general governmental purposes. The paper uses the Master Settlement Agreement between the states and major tobacco companies to illustrate the moral hazard that is created when states become dependent on sin tax revenues. Finally, the paper draws out lessons from the states’ experience with taxing tobacco products to identify issues that should be considered as state legislatures weigh whether to enact new sin taxes.

The Supreme Court’s 2011 decision in Mayo Foundation for Medical Education and Research v. United States clarified a few things about judicial deference in the tax context: general administrative law standards govern judicial review of general authority Treasury regulations (instead of the tax-specific standard articulated in National Muffler Dealers Ass’n v. United States); and, based on the test articulated in United States v. Mead Corp., general authority Treasury regulations promulgated through notice-and-comment rulemaking carry the force of law and are eligible for deference under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. The Court left many questions unanswered, among them (1) whether temporary Treasury regulations and IRB guidance documents (revenue rulings, revenue procedures, and IRS notices) that lack notice and comment but are enforceable through civil penalties are likewise eligible for Chevron deference or only the less deferential review of Skidmore v. Swift & Co., and (2) whether these formats are legislative rules subject to APA notice-and-comment rulemaking procedures or interpretative rules exempt from those requirements.

Under general administrative law doctrine, the courts would apply different tests and steps for answering these questions. Ultimately, however, whether a particular rule is legislative in character depends upon whether that rule carries “the force of law.” Likewise, whether agency action is eligible for Chevron deference likewise turns upon whether that action carries “the force of law.” In considering these issues, it is not at all clear whether “the force of law” occupies precisely the same conceptual space. The purpose of this article is to try to resolve the questions left unanswered by the Mayo Court by exploring and attempting to reconcile the history and nuances of the force of law concept as the courts have applied it in different administrative law contexts.

Our central thesis is that the current income tax regime undertaxes business owners and overtaxes workers in unexamined and unjustifiable ways. We show how the income tax system can and does lead to misallocations of economic resources, including the perpetuation of gender, race, and class inequalities. Our analysis focuses primarily on outlays and their classification as either costs of producing income or items of consumption – a foundational distinction under the Haig-Simons definition of income. We find that the tax law is too generous and deferential in classifying business owners’ outlays as incurred in the production of income. Conversely, the law too readily dismisses workers’ costs of producing income, instead classifying them as consumption items. We show this first by analyzing tax jurisprudence with respect to outlays that are immediately deductible under § 162 and then by examining the rules governing capitalized costs. We go on to explain how the systematic bias in the tax treatment of business owners and workers reflects the cultural values of the first half of the twentieth century, the very period when the foundational principles of the income tax took shape. By relying on empirical evidence and a range of interdisciplinary research, we next demonstrate how the tax law reinforces and further entrenches these cultural values through allocative inefficiencies that overvalue business owners and undervalue workers. Finally, we propose solutions to rebalance the tax treatment of business owners and workers.

Recognizing that a federal cap-and-trade program will affect the tax system both directly and indirectly, this paper will consider how the direct and indirect tax issues should be resolved. Direct tax issues include how emissions credits should be treated, the tax consequences of the receipt of emission allowances, and the tax consequences of the sale of emission allowances. A cap-and-trade system will affect the tax system in two broad indirect ways: 1) it will alter the effectiveness of energy tax incentives contained in the tax system under current law, and 2) the additional costs imposed by a cap-and-trade program will fall disproportionately on low-income taxpayers. The regressive impact of cap- and-trade could be resolved in a number of ways, which may include changing the tax system. The resolution of tax issues should maintain the environmental effectiveness of the cap-and-trade program without increasing the complexity of the tax system. The ideal solution would mitigate climate change while improving the clarity and transparency of the tax system.

This paper will begin with an introduction of climate change issues, including a brief history of international mitigation efforts. The next section will give an overview of cap-and-trade systems and describe how a typical cap-and-trade system would interact with the current federal income tax system. The discussion of the interaction of cap-and-trade with the income tax will include both direct and indirect effects. This section will then compare those effects with the potential impact of a carbon tax. The direct impacts of cap-and-trade on the income tax system occur because the “trade” part of cap-and-trade creates a new financial instrument that needs to be accounted for within the tax system. A carbon tax would not create a new financial instrument. Both a carbon tax and a cap-and-trade system could cause international trade issues that could affect the income tax system. Both a carbon tax and a cap-and- trade system, by placing an additional cost on energy-intensive products, could alter the effectiveness of existing energy tax incentives and place a disproportionate burden on low-income populations.

The IRS must ensure that sensitive taxpayer information is protected against improper disclosure when responding to requests from lenders. Taxpayers commonly request tax return transcripts to submit to their lenders so that they can obtain loans. The IRS uses the Income Verification Express Services (IVES) Program to process requests for information by lenders. The IVES Program processes more than 10 million requests for tax return information annually.

The years 2009 to 2011 have been an active period for taxpayer challenges to regulations. This has resulted in many important judicial opinions. Johnson believes the most important is the Supreme Court’s January 11 Mayo decision. Mayo makes it clear that Chevron provides the standard when tax regulations are challenged; it rejects the old view that general authority regulations receive less deference than specific authority regulations; and it confirms that Treasury and the IRS are fully subject to the usual rules of administrative law. However, it does not fundamentally change the balance between taxpayers and the government. This report examines these and other aspects of Mayo and suggests possible future battlegrounds for challenges to tax regulations.

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As GE continues to draw criticism for avoiding U.S. taxes, The Daily Beast looks at other corporations, from Google to News Corp., that have creatively kept billions from Uncle Sam.

Altria (Philip Morris): "Taxation strategy: Between 2001 and 2003, the cigarette maker took advantage of $3.3 billion in tax breaks, which effectively cut its taxes by one-third. One cause for the tax-cost cutting: accelerated depreciation, which estimates an asset’s declining value faster in earlier years of ownership as a way of deferring income taxes."

Boeing: "Taxation strategy: Despite a double-digit tax rate, Boeing has managed to escape paying federal taxes for the last three years thanks to a plethora of foreign subsidiaries, which act as a tax haven. According to Citizens for Tax Justice, the airplane maker paid 0.3% of its pre-tax income in federal income taxes in 2010."

Devon Energy: "Taxation strategy: Using accelerated depreciation, tax breaks, and benefits from stock options allowed the oil-and-gas company to sneak by with an average tax rate of just 3% from 2001 through 2003. In 2009, the company’s total tax benefit was $1.7 billion."

General Electric: "Taxation strategy: GE's "innovative" accounting methods—which allowed it to accrue a $3.2 billion tax benefit in 2010, $833 million in 2009 and $651 million in 2008—are legendary. The company employs an entire team of former IRS and Treasury officials, dubbed the "world's best tax law firm," to make sure that profits are recorded in tax havens, tax breaks are maximized and laws passed on Capitol Hill are favorable to its interests. In the last five years, its fillings show $26 billion in domestic profits, padded with a net tax benefit of $4.1 billion."

Goodrich: "Taxation strategy: In the past, Goodrich’s effective tax rate was as low as 11.3%. Since Goodrich is an aerospace company, one straightforward reason is the tax breaks it can claim are related to the depreciation of assets."

Google: "Taxation strategy: Transfer pricing. Incomes are reported in foreign tax havens while liabilities are reported domestically. Google’s patents are also licensed outside of the U.S., allowing it to license its patents domestically and write off the expense."

Hartford: "Taxation strategy: Hartford is just one of many insurers that have been “benefiting from a variety of provisions in the tax code intended to favor the industry.” According to The Wall Street Journal, the life-insurance company, which claimed it was eligible for between $1.1 billion and $3.4 billion in TARP funds in 2008, had paid just $1.4 billion in taxes in the preceding decade (or an effective rate of 7.7%)."

Hewlett-Packard: "Taxation strategy: As a tech company, H-P does what most do. It keeps its IP and incomes registered in other countries. In 2004, when companies were temporarily allowed to repatriate earnings abroad, H-P claimed $14.5 billion of the $15 billion it had earned abroad as domestic earnings."

IBM: "Taxation strategy: In 2009, the tech giant shrank its effective tax rates by nearly 10% by postponing the taxes it earned abroad. Between 2001-2003, the company’s tax liabilities were slashed by 95% thanks to a litany of breaks it was able to claim."

Microsoft: "Taxation strategy: Microsoft has a history of shifting its reported income through various foreign locales—to Bermuda via The Netherlands via Ireland—to limit domestic income. The tactic isn’t just for the long-established techies, it has also been adopted by Facebook."

Morgan Stanley: "Taxation strategy: Stock options tax savings have provided Morgan Stanley with hundreds of millions of dollars over the years, as has its low-tax finagling abroad. When the American Jobs Creation Act was passed (with help from extensive corporate lobbying) and companies were allowed to repatriate earnings for an income tax rate of 5.25% (much lower than the standard 35%), Morgan Stanley was among the major corporations to take advantage."

New Corp: "Taxation strategy: In December 2008, the Government Accountability Office reported that 83 of the 100 largest companies in the U.S. had subsidiaries in foreign tax havens. One of the companies with the highest number was News Corp., which then had more than 150 subsidiaries in tax-haven locales."

Oracle: "Taxation strategy: Transfer pricing—though not without implications. Oracle suffered a bit last fall when its Japanese subsidiary had to negotiate an advance agreement with tax authorities in the U.S. and Japan so that it wouldn’t get hit with transfer price taxes in Japan. But the agreement forced the subsidiary to agree to pay higher royalty fees and had to lower its earnings projections. Its stock closed 9% below the previous day’s close on the Nikkei, the Japanese stock market."

Pfizer: "Taxation strategy: Like many pharmaceutical and technology multinationals, Pfizer has used transfer pricing to record sales in one country to profits (on paper) in another country entirely."

Time Warner: "Taxation strategy: The entertainment conglomerate managed some swift accounting to use its merger with AOL in 2000 to leave it with little tax to pay. Between 2001 and 2003, Time Warner claimed tax breaks that cut its taxes by 121 percent—and allowed the company to pay nothing at all in taxes for two years."

Charlie Engle wasn’t a seller of bad mortgages. He was a borrower. And the “mortgage fraud” for which he was prosecuted was something that literally millions of Americans did during the subprime bubble. Supposedly, he lied on two liar loans. ...

It’s not just that Mr. Engle is the smallest of small fry that is bothersome about his prosecution. It is also the way the government went about building its case. ...

As a young man, Mr. Engle had been a serious drug addict, but after he got clean, he became an ultra-marathoner, one of the best in the world. In the fall of 2006, he and two other ultra-marathoners took on an almost unimaginable challenge: they ran across the Sahara Desert, something that had never been done before. The run took 111 days, and was documented in a film financed by Matt Damon, who served as executive producer and narrator. ...

The film, Running the Sahara, was released in the fall of 2008. Eventually, it caught the attention of Robert W. Nordlander, a special agent for the IRS. As Mr. Nordlander later told the grand jury, “Being the special agent that I am, I was wondering, how does a guy train for this because most people have to work from nine to five and it’s very difficult to train for this part-time.” (He also told the grand jurors that sometimes, when he sees somebody driving a Ferrari, he’ll check to see if they make enough money to afford it. When I called Mr. Nordlander and others at the IRS to ask whether this was an appropriate way to choose subjects for criminal tax investigations, my questions were met with a stone wall of silence.) ...

Still convinced that Mr. Engle must be hiding income, Mr. Nordlander did undercover surveillance and took “Dumpster dives” into Mr. Engle’s garbage. He mainly discovered that Mr. Engle lived modestly.

In March 2009, still unsatisfied, Mr. Nordlander persuaded his superiors to send an attractive female undercover agent, Ellen Burrows, to meet Mr. Engle and see if she could get him to say something incriminating. In the course of several flirtatious encounters, she asked him about his investments.

After acknowledging that he had been speculating in real estate during the bubble to help support his running, he said, according to Mr. Nordlander’s grand jury testimony, “I had a couple of good liar loans out there, you know, which my mortgage broker didn’t mind writing down, you know, that I was making four hundred thousand grand a year when he knew I wasn’t.” Mr. Engle added, “Everybody was doing it because it was simply the way it was done. That doesn’t make me proud of the fact that I am at least a small part of the problem.”

Unbeknownst to Mr. Engle, Ms. Burrows was wearing a wire.

Lying on a stated-income loan is, without question, a crime, and one ought not to excuse it even though, as Mr. Engle says, “everybody was doing it” — usually with the eager encouragement of their brokers. But the Engle case raises questions not just about the government’s priorities, but about something even more basic: did he even commit the crimes he is accused of? ...

But the more I looked into it, the more I came to believe that the case against him was seriously weak. No tax charges were ever brought, even though that was Mr. Nordlander’s original rationale. Money laundering, the suspicion of which was needed to justify the undercover sting, was a nonissue as well. As for that “confession” to Ms. Burrows, take a closer look. It really isn’t a confession at all. Mr. Engle is confessing to his mortgage broker’s sins, not his own.

Perhaps anticipating that problem, when Mr. Nordlander finally arrested Mr. Engle in May 2010, he claims to have elicited a stronger, better confession while Mr. Engle was handcuffed in the back seat of his car. Mr. Engle fervently denies this. This second supposed confession, however, was never captured on tape.

The AALS yesterday sent this remarkable 10-page letter to the ABA opposing the Standards Review Committee's proposed changes to the ABA Standards for Approval of Law Schools. Here is the blistering conclusion:

Those who seek to alter the fundamental assumptions underlying accreditation and its role in the system of legal education should bear the burden of justifying that need to the legal education community and all those who rely on the high quality of American legal education.

We therefore ask the Council and the Standards Review Committee to take the following actions:

Reject the radical proposed changes to the role of faculty, and other changes to the standards that would weaken, rather than strengthen, legal education.

Initiate a process for the specific purpose of allowing all important constituencies to understand and debate the vision animating the current proposals and their combined effect on legal education.

Undertake or commission an independent, fact-based study of the actual cost drivers in legal education, and their relationship with the accreditation process.

Over the past few decades the globalization of trade and investment and the exponential growth in bilateral tax treaties have greatly increased opportunities for taxpayers to engage in abusive treaty shopping that is neither intended nor contemplated by the contracting states. This conduct upsets the balance of sacrifices associated with the negotiation of tax treaties, undermines incentives to enter into tax treaties and facilitates international tax avoidance and evasion. In response to this phenomenon, the OECD and several countries have adopted various strategies, including the interpretation of tax treaties and the application of anti-avoidance rules in domestic law and tax treaties themselves. This paper has reviewed and evaluated these responses -- examining cases and commentary on the concepts of residence and beneficial ownership, the existence of an anti-abuse principle inherent in tax treaties, domestic anti-avoidance rules and treaty-based anti-avoidance rules.

While each of these responses has a role to play in preventing abusive treaty shopping, this paper questions whether the interpretation of residence and beneficial ownership can prevent abusive treaty shopping, and the extent to which references to an inherent anti-abuse principle and/or domestic general anti-avoidance rules represent a fair and effective response, given uncertainty over the line between acceptable tax planning and abusive treaty shopping. For this reason, it concludes that the best response to treaty shopping involves the inclusion of detailed LOB and subject-to-pay provisions in tax treaties. Although Congress has shown some willingness to move in this direction in recent years, much more is required to ensure a coherent and consistent approach to treaty shopping.

Lee will speak on the Dodd-Frank Wall Street Reform and Consumer Protection Act and its impact on banks' capital requirements. Lee is a dynamic presenter, with tremendous insight and who has her fingers on the pulse of the latest tax issues.

Can a wild wig and a bushy mustache be packaged and called an Albert Einstein costume? According to Hebrew University of Jerusalem and its American marketing agent, the answer is no — at least not without permission. The university says that when it inherited Einstein’s estate, the bequest included ownership of Einstein’s very identity, giving it exclusive legal control over who could use Einstein’s name and image, and at what cost.

Einstein is not the only example. While we might think of people like the Rev. Dr. Martin Luther King Jr., George Patton, Rosa Parks, Frank Lloyd Wright and Babe Ruth as part of our cultural heritage, available for all to use, the identities of each of them, and thousands more, are claimed as private property, usable only with permission and for a fee.

This phenomenon is fairly recent — and it’s getting out of control. ... Today the right of publicity clearly allows people to control the commercial use of their names and images during their lives. What happens after death is much murkier.

Throughout much of the world, the right of publicity ends at death, after which a person’s identity becomes generally available for public use. In the United States, however, this issue is governed by state laws, which have taken a remarkably varied approach. ...

The economic value of a dead celebrity’s image imposes another cost as well. Namely, rights of publicity, like all other property interests, are subject to estate taxes at their highest market value. This means that even if heirs choose not to market a person’s identity (perhaps to protect their loved one’s dignity), they nonetheless must pay taxes on the right. In some cases, that could compel heirs to market their loved ones’ identity in order to pay the taxes associated with it. Paradoxically, the values would likely be highest for those individuals who most coveted their privacy while alive (think J. D. Salinger). ...

Congress should step in and enact a federal right of publicity. In doing so, it should establish clear First Amendment protections and set forth a relatively short term for the right of publicity to survive death (perhaps 10 years). Most important, the law should provide a mechanism that allows people to opt out of marketing their identities after death. After all, sometimes the dead should be allowed to simply rest in peace.

Below are the updated quarterly traffic rankings (page views and visitors) of the Top 35 blogs edited by law professors with publicly available SiteMeters for the most recent 12-month period (Jan. 1, 2010 - Dec. 31, 2010), as well as the percentage change in traffic from the prior 12-month period:

Please email me the names of any Law Prof Blogs with traffic over the past twelve months that would qualify for inclusion on the lists (202,064 page views and/or 135,329 visitors). If necessary, I will re-publish the list to include all qualifying blogs.

Several popular Law Prof Blogs do not have publicly available SiteMeters and thus are not included on the list: e.g., California Appellate Report, Credit Slips, The Deal Professor, Dorf on Law, Feminist Law Professors, InstaPundit, Legal Theory, Point of Law, ProfessorBainbridge.com.

These rankings cover only those blogs edited by law professors. Other law-related blogs edited by practitioners, librarians, non-law school academics, and journalists are not included on this list: e.g., Above the Law, How Appealing, Law Librarian Blog, Wall Street Journal Law Blog.

Members of our Law Professor Blogs Network comprise, by page views, two of the Top 10, six of the Top 25, and ten of the Top 35 blogs; and by visitors, two of the Top 10, six of the Top 25, and ten of the Top 35 blogs.

One of the principal determinants of an asset’s return is its liquidity - the ease with which the asset can be bought and sold. Liquid assets yield a lower return than do otherwise comparable illiquid assets. This Article demonstrates that an income tax alters the tradeoff between asset liquidity and yield because: (1) high yields from illiquid assets are taxed; (2) imputed transaction services income from liquidity is untaxed; and (3) illiquidity costs are only sometimes deductible. As a result, assets have more liquidity and the price of liquidity in terms of yield is higher than it would be in the absence of an income tax. These distortions foster an excessively large financial sector, which exists in large part to create (tax-favored) liquidity. The tax wedge between liquidity and yield also creates clientele effects, in which low-rate taxpayers, such as nonprofit institutions, hold illiquid assets regardless of their liquidity needs. The liquidity/yield tax distortion also offers a new perspective on fundamental questions in federal income tax, such as the desirability of the realization requirement, preferential capital gains tax rates, and corporate taxation. These elements of the income tax mitigate or even negate the pro-liquidity tax bias identified in this Article.

Revenues from a VAT could be used to reduce the corporate rate. Table 3 shows the VAT rates required for different levels of rate reduction. A reduction in the corporate rate from 35%to 20% could be financed with a VAT with a rate between 2.6 and 4.5%, depending on how much special relief is provided.

Reducing or even eliminating the corporate tax and replacing the lost revenues with a VAT has always been a good idea for competitiveness reasons. The United States would be substituting revenues from its least economically efficient tax with a highly efficient consumption tax. ...

For decades, the conventional political wisdom has been that a VAT will never be enacted in the United States because liberals view it as a tax targeting the poor and conservatives view it as a money machine. And in response, pundits would quip that a VAT will be enacted when liberals view it as a money machine and conservatives view it as a tax on the poor.

It's time to jettison that type of talk. What passed for healthy skepticism in the 1990s is no longer useful or particularly relevant. Unlike in previous episodes when the federal deficit was front-page news -- as in 1982-1984 (debt-to-GDP ratio at about 25%) or 1990-1993 (debt-to-GDP ratio at about 45%) -- now we truly are playing with the possibility of the collapse of federal finances (debt-to-GDP ratio surpassing 80% in 2015, and growing). Until somebody can guarantee that our fiscal problems are under control, either because spending cuts are politically feasible or because concerns about the economic fallout from rising debt are overblown, it is prudent to give a VAT a prominent role in the debate about deficit reduction.

Moreover, as globalization increases demand for a more competitive tax system, the United States must consider shifting from a system that relies primarily on income taxation to one that relies primarily on consumption taxation. Most other major economies around the world depend more heavily on consumption taxation than does the United States. And by all indications, reliance on consumption taxes is increasing.

Finally, the traditional liberal and conservative arguments against consumption taxation are hardly insurmountable. True, VATs are generally more regressive than income taxes, but the differences are usually overstated (because government analyses equate well-being with annual income as opposed to lifetime income, a superior measure). But more importantly, however one evaluates fairness, any regressive effects of a VAT can be offset by changes elsewhere in the tax system or in the provision of government support and services. For example, Prof. Leonard Burman of Syracuse University has proposed using a VAT to pay for expansion of healthcare to the poor (A Blueprint for Tax Reform and Health Reform) ...

As for conservatives who make the money-machine argument, they are nothing more than fiscal luddites. Their wish to drastically reduce government spending must be separated from the issue of how the revenue is raised. The VAT is a modern and efficient method of raising revenue, as any conservative economist will privately tell you. Consumption taxation is the revenue raiser most conducive to international competitiveness. Insisting on that indirect method of limiting government spending comes at a huge cost to the economy.

If there is a movement to reduce traffic deaths, we do not tell automakers to make smaller and less powerful engines. We seek better roads, safer cars, and improved driving skills. Similarly, if there is a movement to reduce government spending, we should not make the revenue engine less efficient. We should put caps on government spending and make arguments against programs on a case-by-case basis.

Conservatives repeatedly express their fear that an efficient revenue generator will only make it easier for politicians to finance big government. That is a possibility, but hardly an iron law. It's hard to believe that if a VAT were in place, the politics of raising revenue would be any easier than now. ...

In summary, if conservatives can sufficiently cut government spending and if they are willing to remain dependent on income taxation, they are correct to shun a VAT. But they haven't proposed the necessary cuts. And if anything, their efforts to promote competitiveness through the tax system suggest less, not more, income taxation.

All Tax Analysts content is available through the LexisNexis® services.

This article examines the effectiveness and feasibility of some of the main proposals for financial taxes by analysing their economic rationale and impact and some related international trade law issues regarding their implementation. The advantages and disadvantages are considered in terms of their effect on risk mitigation, market liquidity and the provision of sustainable revenue. The article suggests that financial transaction taxes, especially those applied to currency transactions and exchange-traded and over-the-counter derivatives, could serve regulatory objectives while raising adequate revenue to assist governments in paying for the social costs of financial crises and providing global public goods.

This article examines the peculiar history of Ireland’s position within the European Union. It argues that Ireland’s political personality, based on post-colonial dependency, has encouraged national reliance on a low corporate tax rate and American multinational investment as a supposedly acceptable strategy for pursuing a prosperity which eluded Ireland for decades after independence. Ireland took the easy route in that, when it joined the EC, instead of actually making products of interest to European and international markets, it took advantage of its location within the common market to single-mindedly lure multinational corporations through tax savings. Ireland’s approach has lacked the kind of “loyalty to an idea” characteristic of the EU since its founding.

In analyzing the nature of Ireland’s anomalous presence in the EU, the article explores the usual manner in which the EU “transforms” national history, and the corresponding manner in which national history acts on the EU. Ireland has resisted this kind of transformative interaction. While playing the part of an enthusiastic participant in the European project, Ireland was not in fact internalizing EU values of solidarity and cooperation. Rather, Ireland treated its access to the European market, and the extremely low tax environment for US-based multinationals, as a kind of get rich quick scheme. While Irish behavior was inconsistent with the EU ideal of mutual solidarity, it was also damaging towards US society, with its obvious need for increased public investment, which in turn requires adequate revenue from such sources as corporate taxation.

Under this analysis, Ireland also short changed its own culture (including a potential indigenous business culture) and physical environment. Over a long period of time, the EU inexplicably allowed Ireland to use purely tax-based techniques which, if widely imitated by other EU states, would have caused a fiscal crisis for the Union. Despite a severe economic downturn that began in 2009, it appears that Ireland will, if at all possible, maintain a passive and tax-dependent approach to economic development.

Unmarried lovers who conceive are strangers in the eyes of the law. If the woman terminates the pregnancy, the man owes her nothing. If she takes the pregnancy to term, the man’s obligation to support her is limited. The law reflects this lovers-as-strangers presumption by making a man’s obligation towards a woman with whom he conceives derivative of his paternity-related obligations; his duty is towards his child, not towards the woman in her own right. Thus, a pregnant woman’s lost wages and other personal costs are her private problem, and if there is no child at the end of the pregnancy, there is no one—from a legal perspective—that the man must support.

The law also endorses this lovers-as-strangers default in the way in which it treats men who do support their pregnant lovers. It does this through the tax code. Current tax law likely regards payments between unmarried lovers as gifts or as child support. This characterization not only misses the mark descriptively, it also misses an opportunity to reward and encourage a behavior that is critically important in an age when sex and procreation outside of marriage are common.

This Article argues that the law should develop a new framework for addressing the unique relationship between unmarried lovers who conceive and that tax reform offers a practical and relatively modest first step for doing so. To this end, it proposes that Congress create a pregnancy-support deduction to benefit taxpayers who already support pregnant women, thereby extending to them the same deduction we now give taxpayers who pay alimony.

The Ninth Circuit recently reversed the district court’s summary judgment in favor of the government in Linton on the issues of indirect gift and the applicability of the step transaction doctrine. The circuit court’s analysis focused on the taxpayers’ donative intent. With that emphasis, the Ninth Circuit remanded the case to the district court to determine the sequence of the relevant transactions.

This Essay addresses the increasingly common social situation in which tax lawyers are confronted with tax protester arguments and similar anti-tax system comments. This Essay seeks to place these conversations in a greater context of tax policy and ethical considerations, urging tax lawyers not to walk away from the conversations but rather to engage with hopes of educating the public, improving the law, and protecting the interests of the vast majority of Americans who pay their share of the price of civilization and expect others to do the same.

I think it's important to correct a few potential misimpressions and to offer a different perspective on Northwestern Law. I am a new faculty member at Northwestern (visitor in 2009-10, hired in 2010), though I was a professor elsewhere (Texas and ASU) for 20 years.

I begin by pointing out the obvious: Ron Allen's views are his own. There may be others who have similar views, but they certainly don't represent those of many of the fabulous people on the Northwestern Law faculty that I have come to know over the past year or so. I have heard that Brian Leiter is no fan of Van Zandt's and that should be considered as well.

Ron writes: "However, over the years the shift in emphasis became a radicalized vision, and here is where it became harmful. In the last five years, essentially the only hiring that could be done was of quantitative Ph.D.s for whom a JD was irrelevant."

As I said, I'm new so I can't speak with any authority about the former Dean's vision, tactics, and implicit hiring restrictions. But I can speak to a few factual matters.

The University of Missouri School of Law has dropped to the 107th spot in the annual U.S. News & World Report rankings, but Dean Larry Dessem isn’t taking much stock in the report. “I’m disappointed but not particularly surprised,” he said. “This is magazine marketing masquerading as social science.”

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new paper debuting on the list at #5. The #1 paper is now #87 in all-time downloads among 7,357 tax papers :

When Congress jerks around with the tax laws, bad things happen. Generous wealthy people who have to deal with federal gift taxes for 2010 are supposed to file their gift tax returns by April 18 -- the same deadline as for their income tax returns. But because Congress took until December of 2010 to figure out what the law was going to be for 2010, the IRS couldn't get the gift tax return form instructions generated until last Friday, only a month before the filing deadline.

It gets worse: The rules that Congress finally passed are so screwy that even the IRS couldn't get them straight. The form instructions that the agency published were wrong, and the IRS was forced to take them down on Wednesday of this week. Maybe the IRS should send all the rich folks a request for an extension.

Senators Bill Nelson (D-FL) and Scott Brown (R-MA) have seized upon such logic, recently proposing the Taxpayer Receipt Act, which would require the IRS to send everyone who files an income tax return an "itemized receipt ... that lists where their payroll and income taxes are spent. The receipt would include key categories such as the interest on the national debt, Social Security, Medicare, Medicaid, national defense, education, veterans’ benefits, environmental protection, foreign aid – and, last but not least, Congress."

This is the type of idea that appeals to the purveyors of the conventional wisdom. The editorial page of The Boston Globe, for example, endorsed the idea enthusiastically, saying that it "should appeal to citizens across the political spectrum." President Obama is apparently on board. Who, after all, could be against providing people with more information? Informed debates are better than uninformed ones.

The problem is that, especially when the subject is something as complicated and wide-ranging as the activities of a national government, all attempts to provide information must be highly selective. Deciding what not to say is often more important than deciding what to say. Moreover, facts out of context can be highly misleading. The Taxpayer Receipt proposal is already set up to be slanted in favor of certain policy choices, and my suspicion is that over time it would become yet another area for partisan battle over how to manipulate public perceptions.

Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets. [click on chart to enlarge]...

As they've grown, the incomes of the wealthy have become more unstable. Between 2007 and 2008, the incomes of the top-earning 1% fell 16%, compared to a decline of 4% for U.S. earners as a whole, according to the IRS. Because today's highest salaries are usually linked to financial markets—through stock-based pay or investments—they are more prone to sudden shocks. The income swings have created more extreme booms and busts for state governments. ...

Tax experts say the problems at the state level could spread to Washington, as the highest earners gain a larger share of both national income and the tax burden. The top 1% paid 38% of federal income taxes in 2008, up from 25% in 1991, and they earned 20% of all national income in 2008, up from 13% in 1991, according to the Tax Foundation. "These revenues have a narcotic effect on legislatures," said Greg Torres, president of MassINC, a nonpartisan think tank. "They become numb to the trend and think the revenue picture is improving, but they don't realize the money is ephemeral."

Kicking the addiction has proven difficult, since it's so fraught with partisan politics. Republicans advocate lowering taxes on the wealthy to broaden state tax bases and reduce volatility. Democrats oppose the move, saying a less progressive tax system would only add to growing income inequality. [click on chart to enlarge]

In the partisan fight over taxing the rich, state "millionaire's taxes" have emerged as the latest and most hotly contested battleground.

In New York, New Jersey, Maryland, Oregon and California, state governors are at war with legislatures over taxing their state's highest earners to plug revenue gaps. Advocates of the taxes say that with the wealthy riding the recovery of stock markets and global growth, and with less fortunate Americans facing unemployment and a housing slump, the top earners can best afford to foot the government's bills. Opponents say the taxes amount to a redistribution of wealth and encourage runaway government spending.

Polls show that many voters support taxing the top 1% or 2% of earners in each state. ... Yet so far, the calls for hiking taxes on top earners have fallen flat at governor's offices and state legislatures. ...

Though attractive to voters and many Democratic politicians, millionaire's taxes carry risks. Because the incomes of top earners are the most volatile, such taxes are among the most unstable sources of state revenue. ... Some also argue that special taxes on the wealthy can drive the highest-earners to lower tax states.

Because the interests of the producers and the states are diametrically opposed—the former vying for bigger incentives and the latter for greater returns on their investment—aggressive competition among the states favors the producers to the detriment of the states. If competition presists (or increases) it may even become a challenge to hold on to the gains already made, let alone succssfully build entirely new industries. States must recognize that such competition is economically detrimental to them, and that while big productions can infuse large sums of money into a local economy, better uses for state funds, which may produce greaters returns on their investment, may exist.